What is a good HHI Index?

The Herfindahl-Hirschman Index (HHI) is used to determine market competitiveness. A market with an HHI of less than 1,500 is considered a competitive marketplace, an HHI of 1,500 to 2,500 is moderately concentrated, and an HHI of 2,500 or greater is highly concentrated.

How do you find the Herfindahl index?

You can calculate Herfindahl Index by squaring the market share for each firm (up to 50 firms) and then adding the squares. In a perfectly competitive market, HHI should approach zero.

What is the highest possible HHI?

The largest HHI possible is the case of monopoly, where one firm has 100% of the market; the index is 1002, or 10,000. An industry with two firms, each with 50% of total output, has an HHI of 5,000 (502 + 502).

What is a low HHI?

According to the U.S. Department of Justice, an HHI of less than 1,500 represents an industry with low market concentration. An HHI ranging between 1,500 and 2,500 represents moderate concentration. HHI values of more than 2,500 represent a highly concentrated industry.

How do you solve HHI?

The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 (302 + 302 + 202 + 202 = 2,600).

What does HHI stand for income?

Herfindahl-Hirschman index (HHI), also called HH index, in economics and finance, a measure of the competitiveness of an industry in terms of the market concentration of its participants. Related Topics: Monopoly and competition Competition.

Why is the largest possible value of the Herfindahl index is 10000?

The largest possible value of the Herfindahl index is 10,000 because: An industry with an index higher than 10,000 is automatically regulated by the Justice Department An index of 10,000 corresponds to 100 firms with a 1% market share each An index of 10,000 corresponds to a monopoly firm with 100% market share.

How do you calculate cr4?

Add together the total sales for each of the four largest firms in your selected industry. Then divide that sum by the total sales of the industry. Convert that result to a percentage, and that percentage value is the four-firm concentration ratio.

Which industry has the highest Herfindahl index?

Industry R has a higher Herfindahl-Hirschman Index than Industry Q. Industry Q has a higher Herfindahl-Hirschman Index than Industry R. None of these statements are true.

How is HHI calculated?

Is HHI household income?

The amount of household income includes any income brought in by individuals over the age of 15 living under the same roof. The combined total before tax is the household income. It’s not necessary that these individuals be related, the HHI refers to all income.

What is CR4 ratio?

For example, the four-firm concentration ratio (CR4) refers to the market share of the four largest firms. Equal to the sum of the squares of the market shares for the largest 50 firms in the industry. The higher the index, the more concentrated the industry.

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How is the Herfindahl-Hirschman Index ( HHI ) calculated?

Herfindahl-Hirschman Index. The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 (30 2 + 30 2 + 20 2 + 20 2 = 2,600).

How much of an industry does HHI measure?

Using the basic HHI calculation, the industry would appear highly competitive. However, within the marketplace, one company might have as much as 80% to 90% of the business for a specific segment of the market, such as the sale of one specific item.

What does a 10, 000 HHI index mean?

The 10,000 figure comes from a theoretical scenario where there is only one company operating in the industry, with 100% of the market share. According to the U.S. Department of Justice, an HHI of less than 1,500 represents an industry with low market concentration.